Rajiv Shukla v St James Bank & Trust Company Ltd & Anor

A non-recourse transaction may nevertheless be a secured loan. The court must determine its legal character from the agreement’s written terms, considering the transaction as a whole, including provisions said to restrict redemption. Where the agreement creates a debt secured on property, the equity of redemption applies. Terms which prevent or materially inhibit redemption are void as clogs or fetters.

On acceleration of the debt, the lender may owe an implied duty to co-operate with repayment by providing a redemption figure and payment instructions and by releasing the security on repayment. A borrower may have a contractual damages claim where the lender’s failure to co-operate causes loss. A valid tender is not necessarily a prerequisite to breach where the lender’s own failure prevented an effective tender.

The claimant obtained a non-recourse advance from the first defendant secured by listed shares under a written Loan Agreement. Following an event of default based on reduced trading volume, the first defendant asserted that the agreement had terminated, that the claimant had lost the equity of redemption, and that the shares could be realised without accounting for surplus proceeds.

The claimant sought summary judgment for breach of contract, damages, an interim payment, an account, and protective relief. The second defendant had acquired participation in the loan. The principal issues were whether the transaction was a secured loan or sale with an option to repurchase, whether provisions excluding redemption were valid, whether the defendants had to facilitate repayment, and which defendants were liable.

1. Summary judgment. The liability issues were suitable for summary determination under CPR 24.3. The relevant facts were substantially undisputed, the issues turned principally on construction and no material further evidence was identified which might alter the result.
2. Characterisation. Applying the internal route described in Welsh Development Agency v Export Finance Co Ltd, the court considered the written agreement as a whole. Its language and structure created a loan, a repayment obligation and a security interest. The non-recourse provisions limited enforcement to the pledged shares but did not extinguish the debt or the right to repay. The transaction was therefore a secured loan, not an outright transfer with an option to repurchase.
3. Equity of redemption. The doctrine remained part of English law and applied to security over shares. Article 2.3(b), which permitted extensive dealings with the securities, Article 4.4(f), which sought to restrict equitable relief, and Article 6.2(a), which purported to forfeit redemption, were clogs on the equity of redemption and void.
4. Default and co-operation. The events of default made all obligations immediately due and payable. The defendants therefore owed an implied duty to co-operate with repayment. That duty included providing a redemption statement and payment details and releasing the security on full repayment. A valid tender was not a prerequisite to breach where the defendants’ failure to provide the necessary information prevented effective tender. The claimant was in any event willing and able to redeem.
5. Relief. Judgment was entered for the claimant, with damages to be assessed. The defendants were ordered to disclose profits or income from dealings with the pledged and unpledged securities. A provisional interim payment of US$5 million was ordered, subject to further submissions. Release or sale of the securities, payment of profits, and costs were reserved for consequential determination. Both defendants were liable because the participation agreement did not novate or release the first defendant.

First-instance summary judgment in the High Court (Commercial Court). No earlier appellate decision was stated in the judgment.